How Are Tier 2 Metropolises Affected by Housing Asset Value Deflation in the Depopulation Era? A Comparison between the Tokyo and Kansai Metropolitan Areas

Abstract

This study analyzes the differences and similarities between Tier 1 (Tokyo) and Tier 2 (Kansai) metropolitan areas due to shrinking city problems. Both metropolitan areas will see a dramatic decrease in the housing asset value (HAV). Kansai is declining at a faster pace than Tokyo: it is projected that HAVs will register a further decrease of around 38% by 2045, and the decline will be quantitatively more important in the northern suburbs of Osaka. These results raised the question of whether Kansai would be more impoverished by HAV deflation. By focusing on the income multiplier of HAV per household, we find that Tokyo has a higher income multiplier of around 4 (against 2 for Osaka), thus causing much greater HAV deflation per household in Tokyo. Greater HAV deflation per household entails more severe problems for elderly households that need to finance their retirement. Considering our findings, despite earlier and faster trends of HAV deflation in the Tier 2 metropolitan area, the Tier 1 metropolitan area could face big socioeconomic challenges in the future. We conclude that HAV deflation leads to problems of different nature depending on metropolitan rank, rather than just knowing which one is losing more through HAV deflation.